An executive dressing down

A few years ago, if you were a male employee at IBM, the giant American computer company, you would not dare turn up at the office in anything other than a dark suit and white shirt. That was the rule laid down by IBM's legendary founder, Thomas J. Watson, in the 1920s, and he had done so for sound commercial reasons. Most of the people to whom IBM was selling its machines - senior executives in large companies - were also wearing dark suits and white shirts. IBM's salesmen, by dressing in the same way, were showing their customers proper respect.

By the 1980s, however, the world had moved on, and IBM had not moved with it. Not only were businessmen wearing more casual clothes, but they were no longer buying IBM computers. The firms making money in the computer business were sparky newcomers like Apple and Microsoft, run by men in jeans. Like many once-dominant companies, IBM was trapped by its history. The dress code was a symbol of a corporate culture which had become obsolete.

IBM was going downhill fast, and in 1993 the board of the company had the good sense to recruit an outsider as chief executive to stop the rot. Louis Gerstner was a professional manager who had spent most of his career with American Express; he had no knowledge of the computer industry except as a customer.

When he arrived, the existing management was on the brink of splitting IBM into smaller pieces, in the hope that each piece would be as nimble as their new Silicon Valley competitors. Gerstner's first and most important decision was to put a stop to that plan and to focus IBM on what he saw as its greatest strength - the ability to offer comprehensive solutions to its customers' computing problems. This meant more emphasis on providing expensive advice, and less on selling hardware which other firms could make more cheaply.

The strategy was brilliantly successful, and Gerstner retired from IBM, to much acclaim, earlier this year. Yet Gerstner's solution to IBM's problems was widely attacked at the time. In telling his story he takes understandable pleasure in mocking those armchair critics (including the all-knowing Economist magazine) who were convinced of the need to dismember the company. As he sourly remarks, the media never had any noteworthy insights into what was going on at IBM.

This is a blunt, straight-talking book which will win no literary prizes, but has the merit of being written by the man himself, not by a ghost writer. The reader learns nothing of Gerstner's personal life (no golfing digressions as in the recent autobiography by Jack Welch, boss of General Electric), apart from a few bare facts. He was one of four brothers in a middle-class Catholic family on Long Island; his father was a milk-truck driver, his mother sold real estate; his parents remortgaged the house every four years to pay for their children's education.

As for IBM, the narrative is spare, clearly written, with a bearable amount of self-praise. While the book is aimed mainly at practising managers in the private sector - and they will learn more from it than from most business autobiographies - it is relevant to anyone (including Tony Blair) who is struggling to bring about change in big, bureaucratic organisations.

When Gerstner went to IBM he found that its 300,000 employees were organised in fiefdoms which were more concerned to protect their own turf than to advance the interests of the company as a whole. He also discovered a curious practice known as the non-concur process. IBM executives, if they disagreed with a position taken by their colleagues, could announce that they were "non-concurring", thus setting in train a long period of contention and delay before decisions were taken. Each division had its "non-concur coordinator" who was given detailed instructions on how to proceed. Like the dress code, this system was an early casualty of the Gerstner regime.

The conventional response to excessive bureaucracy is decentralisation, bringing decision-making closer to the customer. But, Gerstner argues, this is too simplistic. The problem with the old IBM was that divisional barons had too much authority, and set their own agenda. What Gerstner did was to rip power away from the local chieftains and shift it to the centre - at the cost of bruised egos and "MISing" (an IBM acronym for "management-initiated separations") a fair number of senior executives. The aim was to ensure that the constituent parts of the business worked with rather than against each other.

With any large bureaucracy, whether it is IBM, the National Health Service or the BBC, the first question to ask is whether there are genuine economies in running it as an integrated organisation. If the answer is no, then break it up. If yes, there is no alternative to the forcible re-distribution of authority which Gerstner undertook at IBM.

But this is a painful and difficult exercise, even under a chief executive with dictatorial powers. In a public sector organisation, where the forces of inertia are even greater, politicians might conclude that break-up is the better option.

Geoffrey Owen is the author of 'From Empire to Europe: British Industry After the Second World War' (HarperCollins).